We propose a new method for medium-term forecasting using exogenous information. We first show how a shifting-mean autoregressive model can be used to describe characteristic features in inflation series. This implies that we decompose the inflation process into a slowly moving nonstationary...

We propose a theoretical framework for assessing whether a forecast model estimated over one period can provide good forecasts over a subsequent period. We formalize this idea by defining a forecast breakdown as a situation in which the out-of-sample performance of the model, judged by some loss...

In this paper we propose a methodology to estimate a dynamic factor model on data sets with an arbitrary pattern of missing data. We modify the Expectation Maximisation (EM) algorithm as proposed for a dynamic factor model by Watson and Engle (1983) to the case with general pattern of missing...

This paper proposes a new and robust methodology to obtain conditional density forecasts, based on information not contained in an initial econometric model. The methodology allows to condition on expected marginal densities for a selection of variables in the model, rather than just on future...

We assess the ability of yield curve factors to predict risk premia in short-term interest rates and exchange rates across a large sample of major advanced economies. We find that the same tick-shaped linear combination of (relative) bond yields predicts risk premia in both short-term interest...

We propose two new procedures for comparing the mean squared prediction error (MSPE) of a benchmark model to the MSPEs of a small set of alternative models that nest the benchmark. Our procedures compare the benchmark to all the alternative models simultaneously rather than sequentially, and do...

Fiscal policy constitutes a key tool for business cycle stabilisation next to monetary policy. In this context, having a well-suited macroeconomic model for analysing fiscal policy at a central bank is of primary importance. This paper documents the fiscal block of the ECB-BASE, which is a...

In most OECD countries, we cannot reject up to three breaks in the mean of inflation: one break in the late 1960's-early 1970's, one in the early-mid 1980's and another break in the early 1990's. These breaks tend to be associated more often to breaks in the mean of nominal variables than to the...

This paper uses disaggregated CPI time series to show that a break in the mean of French inflation occurred in the mid-eighties and that the 1983 monetary policy shift mostly accounted for it. CPI average yearly growth declined from nearly 11% before the break date (May 1985) to 2.1% after. No...

There is scant empirical support in the literature for the Fisher effect in the long run, though it is often assumed in theoretical models. We argue that a break in the cointegrating relation introduces a spurious unit root that leads to a rejection of cointegration. We applied new break tests...